A new United Nations report on Wednesday highlights divergent economic recoveries among nations and sheds new urgency behind warnings that richer nations are not doing enough to help poorer countries lag further behind as the world recovers from the COVID-19 disruptions.
“It’s really frustrating to see how responses to the pandemic have played out in quite disjointed ways,” said Inu Manak, an international political economy expert at the Cato Institute, a libertarian think tank based in Washington, DC, United States.
“During the financial crisis, there was a statement that all advanced countries were avoiding protectionism, but during the pandemic, we saw a doubling of borders and an inward turn and a push towards the rhetoric of self-reliance,” he told Al Jazeera. .
The damage from the COVID-19 crisis has outpaced that of the Great Recession of 2007-2009 in most of the global economy, but has been particularly devastating for the developing world, according to a new report. report (PDF) from the United Nations Conference on Trade and Development (UNCTAD) released Wednesday.
The report found that developing countries (excluding China), by 2025, will be up to $ 8 trillion poorer as a result of the coronavirus crisis.
The total cost of delayed vaccines, in terms of lost revenue, will run to $ 2.3 trillion, with the developing world bearing most of that bill.
Even assuming no further shocks, a return to the pre-pandemic income trend could take until 2030, reflecting the weakest growth rate since the end of World War II.
The economic consequences of the pandemic left many developing countries with fewer fiscal resources and a higher debt burden. And for countries on the front lines of climate change, this cocktail has the potential to exclude them from growth and investment for years to come.
“The danger of a lost decade ahead remains very real,” Richard Kozul-Wright, UNCTAD’s director of globalization and development strategies, told Al Jazeera. “And so far, the discussion on the reform of the multilateral system, in the line that followed the financial crisis, has not happened, although the system has clearly fallen short.”
The Debt Service Suspension Initiative of the Group of 20 (G20) nations, which has extended about $ 13 billion to eligible developing countries, “is nowhere near what is needed,” added.
Much-needed financing for many poorer nations was delivered last month when the International Monetary Fund (IMF) approved $ 650 billion in new Special Drawing Rights: SDRs, the IMF’s reserve currency that can be exchanged for hard currencies like the US dollar, and it can help the struggling nations have the necessary cash in their hands.
But most of the new SDR allocation will accrue to richer nations because SDRs are distributed according to a country’s IMF quota, which in turn is determined by a nation’s position in the world economy.
“We will continue to need debt relief and cancellation on a significant scale if developing countries want to mobilize domestic resources to meet the SDGs. [Sustainable Development Goals]”Kozul-Wright told Al Jazeera.
The SDGs are 17 goals, with approaches that include education, health, nutrition and women’s rights, that UN member states have committed to achieving by 2030. Essentially, it is the global development plan that aims to even bring out the the least developed countries out of poverty forever. .
“Doing so will require reforms to the existing multilateral financial architecture and advanced economies need to talk to developing countries about what that might entail,” Kozul-Wright said.
Inequality: decades in the making?
Forty years of reduced government services, growing inequality and impunity for financial and corporate elites had taken a heavy toll on the global economy even before the coronavirus pandemic shut down economies and halted global trade, the UNCTAD report argues.
Post-closing growth has been largely concentrated in North America, which has enjoyed close regional trade links, strong fiscal stimulus and monetary accommodation, according to the report.
“We have seen places where the pandemic has caused much more significant economic collapse, for example in the developing world than in the developed world,” William Milberg, dean and economics professor at the New School for Social Research, told Al Jazeera. .
“And we are seeing a recovery, in Europe, maybe in the US, in China, but we are not seeing that recovery in the developing world.”
This is the 40th anniversary of UNCTAD’s annual report, which was first released in 1981, when the late US President Ronald Reagan was in office. Reagan was an advocate of neoliberal economic policies and free markets who had vowed to control skyrocketing inflation at home. But that localized agenda, said UNCTAD’s Kozul-Wright, had global ramifications.
Tame inflation meant raising US interest rates, which raised the value of the dollar against other currencies. That made it harder for poorer countries to pay off their dollar-denominated debts, ushering in extreme austerity measures that would lead to a “lost decade” of growth and development for nations caught in the maelstrom.
That brutal cycle of debt and austerity would re-establish itself during the global financial crisis.
“The global financial crisis [of 2007-2009] It exposed the dangers of this hyper-globalized system, and although reforms were promised in the G20 and elsewhere, the winners of this system resisted and pressed instead for austerity to adjust the system in their favor, ”Kozul-Wright told Al Jazeera .
Biden: Bolder moves or ‘light protectionism’?
While global growth is expected to reach 5.3 percent this year, the fastest in nearly half a century, the global outlook after 2021 remains extremely uncertain, even in developed economies, according to UNCTAD.
But the tide may be turning.
Since taking office nine months ago, US President Joe Biden has surpassed historic levels of stimulus and expanded social protection programs such as the child tax credit and food stamp benefits.
These developments are “financed through more progressive taxes” and break with “a long-term trend that has transferred income to the top and risk to the bottom of the income distribution,” UNCTAD said.
“We have come to the conclusion that modern capitalism may be near a breaking point on issues of inequality, the environment, and I think Biden’s political stance has been quite bold,” said Milberg, who is also co-director of the Center. Heilbroner for Capitalism Studies at The New School.
“Democrats on many economic issues had capitulated to neoliberal positions and this administration is recognizing that this was not appropriate,” he added.
Internationally, Biden has lobbied for a global minimum corporate tax rate and an exemption from intellectual property rights related to the coronavirus vaccine at the World Trade Organization to push for vaccine equity.
“What remains to be resolved are trade relations between the United States and China. If that can be solved in a collaborative and pro-growth way, then it would be very hopeful, rather than a setback and continued reliance on a more troubled relationship, ”Milberg told Al Jazeera.
But some economists say Biden is lagging behind on trading.
“We’re seeing Trump-era trade policies and ‘light protectionism,'” said Manak of the Cato Institute. “We have not seen any suggested change in China’s approach.”
One positive thing that came out of the trade policies of the administration of former U.S. President Donald Trump was its proposed trade deal with Kenya, aimed at boosting trade with Africa, Manak said, adding that this plan has collided with a Wall.
“Another way to help developing countries is to trade with them,” he said. “But we are seeing a setback.”